How to Resolve Conflicts, Part 5

In my last post, I completed our evaporating cloud example by defining our assumptions and challenging each one for validity. In doing so, I demonstrated how the evaporating cloud model enables us to resolve a conflict.

Presenting Debra Smith’s “Spider Web Conflict Cloud”

In today’s post, I will present what [1] Debra Smith refers to as a Spider Web Conflict Cloud, which she introduced in her book, The Measurement Nightmare. What is shown in the Spider Web Conflict Cloud figure below are typical conflicts that many production managers routinely face.

Managers are faced with many conflicts as they attempt to do their jobs, but conflicts always seem to get in the way of making the right decisions. In the figure below, Smith represents many of the basic conflicts that production and plant managers are confronted with every single day. As you can see, many are direct results of our outdated cost accounting systems. Is it any wonder why managers are confused about how they should be doing their jobs?

Think critically about the faulty assumptions of cost accounting

Let’s look at a few of these regular conflicts managers face every day to better understand why things might be so confusing in manufacturing. One thing we know to be true is that shorter cycle times are an essential part of the way we should be doing business. One sure way to accomplish this is to produce product in smaller batch sizes. But accounting measures tell us that we must maximize machine and labor efficiencies, and the way to do this is to produce product in large batch sizes to avoid equipment changeovers.

So here we have an example of a manager who wants to do a good job, but because of a cost accounting measure with flawed assumptions, a conflict arises. Should the manager do what’s holistically best for the company at the expense of the performance measure? Or should the manager conform to what the measures are telling him to do and protect himself? Unfortunately, since the department’s performance is measured on the basis of optimizing local efficiencies, the decision will most likely be to produce large batches, even though the manager knows it’s better to produce in small batches.

Let’s examine another conflict. Managers know that one of the best ways to produce quality parts is to routinely shut down equipment to perform preventive maintenance. But once again, we are told by traditional cost accounting that we must maximize individual efficiencies on operators and equipment. In order to maximize efficiencies, an assumption is that we need to keep the equipment running longer, which is in direct conflict with our need to shut the equipment down for maintenance. What do we end up doing? We keep running the equipment until it eventually breaks down! Again, the right decision would be to do what’s best to achieve better quality, but we can’t (or won’t) because it’s in direct conflict with cost accounting’s need to maximize local efficiencies, which is, again, based upon a flawed assumption! The reality is that most managers are caught in the middle and end up trying to satisfy both the organization’s holistic needs and the needs of cost accounting.

In all fairness to cost accountants, they are bound by law to externally report financial information (GAAP) to the Internal Revenue Service, the Securities and Exchange Commission, investors, creditors, and other regulatory agencies, I understand the need for this practice. But this information is generally historical and does very little to help managers make real-time production decisions.

A solution that would work for financial reporting and manufacturing

Since cost accounting information is reported externally, manufacturers should have a separate report that is published for internal use. This report would focus on real time manufacturing events, while an external report can satisfy legal financial reporting needs. Each report satisfies a distinct purpose and the time has come for manufacturers to use both.